The new president appears to understand and appreciate the need for innovation. This friendship could be tested because while people love innovators, they don't always have the same regard for the investors in innovation. That sentiment is beginning to shine through, at least in Congress.

First, the Senate is pondering a "Hedge Fund Transparency" bill that lumps those investors in with private equity firms and, gasp, venture capital funds. Clearly, venture firms and hedge funds have completely different charters (although there might have been some blurring over recent years) but the Senate apparently doesn't have the appetite or insight to sort them all out.

Feel free to tip toe over to PEHub for details, but here's the gist: Venture capital firms, at least those with funds of larger than $50 million (so nearly all), will be required to make regular filings to the SEC, listing limited partners and aggregate values of portfolios. It doesn't sound like a big deal, but venture firms already are wrestling with the regulatory demands brought on by FAS 157, the fairly new requirement forcing VCs to regularly assess the values of their portfolios.

If VCs are successful in extricating themselves from the association with hedge funds, they might find themselves fighting a second front. A small business advocacy group, the American Small Business League, is casting the venture industry as predatory billionaires looking to snatch money away from hard-working small business owners. Lloyd Chapman, the group's leader and spokesman, is objecting to the proposed changes by the Small Business Administration that would once again allow companies with significant venture capital backing to apply for SBIR grants.

Through posts on Youtube.com, the Huffington Post and other venues, the group accuses the Obama administration of being in the pocket of the venture capital industry. It even takes aim at Karen Mills, the VC-turned-head of the Small Business Administration, which administers the SBIR program.

President Obama's appointment of multi-millionaire venture capitalist and heir to the multi-billion dollar Tootsie Roll fortune, Karen Mills to head the Small Business Administration (SBA), is seen as an indication he will support federal legislation and policies that could kill millions of middle class jobs by diverting billions of dollars in federal small business contracts to some of the nation's wealthiest venture capitalists.

The National Venture Capital Association issued a worthy rebuttal, pointing out that venture-backed companies are small, struggling ventures that need all the help they can get. Chapman's campaign seems to ignore the fact that venture-backed companies were eligible for the SBIR grants until 2003, when the SBA changed the rules. Congress loosened the requirements again last fall, opening the door for VC-backed companies. But it needs to reauthorize the act.

Like most conflicts, this one isn't necessary. No doubt, venture capitalists and Chapman could sing the same tunes about small businesses creating jobs. In fact, that's just the angle the NVCA pushed in its press release, funding small businesses as a method of getting people back to work. The pharma industry certainly has shed many workers lately, people who could help a small biotech. The two parties also agree that large corporations shouldn't be eligible for the grants, but Chapman's group apparently can't get past the personal wealth of the VCs that may be backing these small businesses, tossing out loaded terms like "wealthy" and "well heeled."

Things are bound to get uglier before they get better. Here's hoping VCs don't get smeared by the same mud brush being used on well-paid Wall Street type. Life sciences VCs, in particular, will need their public images relatively clean as the public discussion moves off the economy onto their new friend's real priority: health care reform and containing the cost of health care.

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